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Journal Article
Aging and Wealth Inequality in a Neoclassical Growth Model
In this article, the author uses a version of the neoclassical growth model with overlapping generations of individuals to investigate the effect of aging on wealth inequality. When an economy?s population becomes older?that is, when the proportion of individuals 65 years of age and older increases?two effects are at work: a direct effect from the changing age composition of the population and an indirect, equilibrium effect from the change in asset holdings by owner?s age. The main result is that wealth inequality in an aging population may decrease or increase depending on the cause of the ...
Working Paper
Equilibrium Multiplicity in Aiyagari and Krusell-Smith
Repeatedly solving the Aiyagari (1994) model with random parameters, we construct hundreds of examples with multiple stationary equilibria. We never find multiplicity with risk aversion less than ≈ 1.49, depreciation less than ≈ 0.19, or income persistence less than ≈ 0.47, and multiplicity requires a disaster state for income. In cases with multiplicity, the lowest rental rate occurs near depreciation times the capital share. It is possible for the economy, without a change in fundamentals, to transition rationally from a higher-rate equilibrium to one with a lower rental rate, lower ...
Working Paper
How Fast are Semiconductor Prices Falling?
The Producer Price Index (PPI) for the United States suggests that semiconductor prices have barely been falling in recent years, a dramatic contrast to the rapid declines reported from the mid-1980s to the early 2000s. This slowdown in the rate of decline is puzzling in light of evidence that the performance of microprocessor units (MPUs) has continued to improve at a rapid pace. Over the course of the 2000s, the MPU prices posted by Intel, the dominant producer of MPUs, became much stickier over the chips' life cycle. As a result of this change, we argue that the matched-model methodology ...
Working Paper
Monetary Tightening, Inflation Drivers and Financial Stress
The paper explores the state–dependent effects of a monetary tightening on financial stress, focusing on a novel dimension: the nature of supply versus demand inflation at the time of policy rate hikes. We use local projections to estimate the effect of high frequency identified monetary policy surprises on a variety of financial stress measures, differentiating the effects based on whether inflation is supply–driven (e.g. due to adverse supply or cost–push shocks) or demand–driven (e.g. due to positive demand factors). We find that financial stress flares up after a policy rate hike ...
Working Paper
Are predictable improvements in TFP contractionary or expansionary? implications from sectoral TFP
We document in the US data: (1) The dominant predictable component of investment-sector TFP is its long-run movements, and a favorable shock to predictable changes in investmentsector TFP induces a broad economic boom that leads actual increases in investment-sector TFP by almost two years, and (2) predictable changes in consumption-sector TFP occur mainly at short forecast horizons, and a favorable shock to such predictable changes leads to immediate reductions in hours worked, investment, and output as well as an immediate rise in consumption-sector TFP. We argue that these documented ...
Working Paper
CECL and the Credit Cycle
We find that that the Current Expected Credit Loss (CECL) standard would slightly dampen fluctuations in bank lending over the economic cycle. In particular, if the CECL standard had always been in place, we estimate that lending would have grown more slowly leading up to the financial crisis and more rapidly afterwards. We arrive at this conclusion by estimating historical allowances under CECL and modeling how the impact on accounting variables would have affected banks' lending and capital distributions. We consider a variety of approaches to address uncertainty regarding the management of ...
Working Paper
Comparative Advantage and Moonlighting
The proportion of multiple jobholders (moonlighters) is negatively correlated with productivity (wages) in cross-sectional and time series data, but positively correlated with education. We develop a model of the labor market to understand these seemingly contradictory facts. An income e?ect explains the negative correlation with productivity while a comparative advantage of skilled workers explains the positive correlation with education. We provide empirical evidence of the comparative advantage in CPS data. We calibrate the model to 1994 data on multiple jobholdings, and assess its ability ...
Working Paper
The Poverty of Macroeconomics --- What the Chemical Revolution Tells Us about Neoclassical Production Function
Quantitative macroeconomics is often portrayed as a science—because of its intensive use of high-powered mathematics—with the possible limitation of being unable to conduct controlled experiments. To qualify as a science, however, theories in that discipline must meet a minimum number of criteria: (i) It has explanatory power to explain phenomena; (ii) it has predictive power to yield quantifiable and falsifiable statements about new phenomenon; and (iii) it has operational power to change the world. A scientific theory consists of axioms and working hypotheses that facilitate the ...
Working Paper
Perturbation methods for Markov-switching DSGE models
This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of Markov-switching DSGE models. We introduce an important and practical idea of partitioning the Markov-switching parameter space so that a steady state is well defined. With this definition, we show that the problem of finding an approximation of any order can be reduced to solving a system of quadratic equations. We propose using the theory of Grobner bases in searching all the solutions to the quadratic system. This approach allows us to obtain all the approximations and ...
Working Paper
Attention and Fluctuations in Macroeconomic Uncertainty
This paper studies a dispersed information economy in which agents can exert costly attention to learn about an unknown aggregate state of the economy. Under certain conditions, attention and four measures of uncertainty are countercyclical: Agents pay more attention when they expect the economy to be in a bad state, and their reaction generates higher (i) aggregate output volatility, (ii) cross-sectional output dispersion, (iii) forecast dispersion about aggregate output, and (iv) subjective uncertainty about aggregate output faced by each agent. All these phenomena are prominent features of ...